Excerpt:.....forth the proper market value expressing what is the estimated market value. in the circumstances, question of pre-determination of the market value does not arise. - but that prosecution resulted in the acquittal of the assessee on the ground that the prosecution had failed to prove the offence under s. 10. the next contention of sri sarangan is more interesting......sources of the assessee. that amount represented the value of 80 wrist watches seized by the customs authorities from the custody and possession of the assessee. at the time of seizure of the said wrist watches, the assessee confessed that the said watches belonged to him, but he later attempted to prove that the real owner of the said wrist watches was on s p bhandary. 4. the customs authorities confiscated the said watches and imposed a penalty of rs. 2,000 on the assessee. the value of the watches confiscated was estimated at rs. 10,060. 5. the ito required the assessee to explain the source of investment of rs. 10,060 for purchasing those watches. the assessee tried in vain to show that s. p. bhandary was the owner of the watches. he could not prove the same. he could not.....

Judgment:

Jagannatha Shetty, J.

1. This is a reference under s. 256(2) of the I.T. Act, 1961 (shortly called 'the Act').

2. The following question has been referred by the Income-tax Appellate Tribunal, Bangalore Bench, for the opinion of this court :

'Whether, on the facts and in the circumstances of the cases, the Tribunal was right in holding that the addition of Rs. 10,060 under section 69 of the Income-tax Act, 1961, was warranted ?'

3. For the assessment year 1975-76, a dispute arose as to the addition of income of Rs. 10,060 from undisclosed sources of the assessee. That amount represented the value of 80 wrist watches seized by the Customs authorities from the custody and possession of the assessee. At the time of seizure of the said wrist watches, the assessee confessed that the said watches belonged to him, but he later attempted to prove that the real owner of the said wrist watches was on S P Bhandary.

4. The Customs authorities confiscated the said watches and imposed a penalty of Rs. 2,000 on the assessee. The value of the watches confiscated was estimated at Rs. 10,060.

5. The ITO required the assessee to explain the source of investment of Rs. 10,060 for purchasing those watches. The assessee tried in vain to show that S. P. Bhandary was the owner of the watches. He could not prove the same. He could not produce any evidence to lend credence to his contention. On the contrary he had admitted before the customs authorities at the time of seizure of the watches that he was the owner of it. So the ITO added the sum of Rs. 10,060 to the income of the assessee as income from other sources.

6. The assessee took up the matter in appeal before the AAC who dismissed the appeal. The assessee's further appeal to the Tribunal was also dismissed.

7. It may be stated that the assessee was prosecuted by the Customs authorities before the criminal court for contravention of the provisions of s. 135 of the Customs Act. But that prosecution resulted in the acquittal of the assessee on the ground that the prosecution had failed to prove the offence under s. 135(1)(b) of the Customs Act, 1962.

8. Sri Sarangan, learned counsel for the assessee, contended before us that in the prosecution launched against the assessee, since there was an acquittal and since the assessee's plea was that the real owner of the watches was S.P. Bhandary, the value of the confiscated watches should not be added as income from undisclosed sources.

9. It seems to us that the acquittal by the criminal court for not proving the offence under s. 135(1)(b) of the Customs Act is irrelevant for the purpose of the I.T. Act. The assessee had conceded at the earliest that he had purchased the watches seized by the authorities. In the absence of any other acceptable evidence, it must be held that he was the real owner of the watches and not S.P. Bhandary. Since the assessee was the owner of the watches found in his possession, he must explain the source with which the watches were purchased. That is the requirement of s. 69 of the Act. The amount utilised for the purchase of the said watches did not find a place in the account books of the assessee. Nor was the assessee able to explain the source of the investment. Mere acquittal by the criminal court for want of proof of the offence alleged against him cannot, therefore, save him from the liability under the I.T. Act, so long as it is not proved that he is not the owner of the goods in question.

10. The next contention of Sri Sarangan is more interesting. He urged that since undisputedly the Customs authorities have confiscated the watches with an imposition of fine of Rs. 2,000, the whole of the price money of the watches should be considered as a loss while computing the income of the assessee.

11. In support of the contention, the learned counsel relied upon the decision of the Supreme Court in CIT v. Piara Singh : [1980]124ITR40(SC) . In that case the assessee was a smuggler. The question was whether he was entitled to deduction under s. 10(1) of the Indian I.T. Act, 1922, on account of the confiscation of his currency notes. It was observed that the confiscation of the currency notes was a loss occasioned in pursuing the business of smuggling. It was a loss in much the same way as if the currency notes had been stolen or dropped on the way while carrying on the business. It was a loss occasioned directly from the carrying on of the business and was incidental to it. These were the reasons for allowing deduction under s. 10.

12. It is true that the I.T. Act is not concerned as to how an assessee earns income. It may be any method legal or illegal. So far as the State's share in the income is concerned, every assessee is treated alike irrespective of his method of earning.

13. But, in the instant case, the assessee was not consistent in his contentions. He never contended before that he was engaged in the smuggling of watches and the confiscation thereof should be treated as a loss in his business of smuggling. It is, therefore, not possible for us to consider for the first time the contention raised in this reference.

14. In the result, the question is answered in the affirmative and against the assessee.